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How Do You Handle Internet Competition?

July 18, 2008

I got a phone call this week from a retailer I haven’t met but who hoped my experience could help him solve a vexing problem. This store owner had spent a lot of floor time working with a client helping them figure out the best  fit for their space, life style, and budget. The client sat in a lot of chairs to make sure they picked the most comfortable ones. The sales consultant spent a lot of time going through the swatches and helping the consumer find the “perfect” fabric. The store wrote down everything for the client who left without placing an order but promised to come back.

Sure enough, the client returned; however, from the title of this blog, I am sure you can all predict what happened next. The customer informed the retailer  they had found the same furniture on the Internet for a lot less money. If the retailer couldn’t meet that bid, they would go elsewhere. The retailer asked me how I handled these situations. I don’t have a solution that will work every time. In fact, I am not sure it will work a majority of the times, but here is what I said.

First, get a copy of the Internet bid. If that isn’t possible, ask your client if they would give you the address of the web site so you can see if the bid is for exactly what you are quoting. Be sure the customer is comparing apples to apples and telling you honestly what the competitive bid is. Many times the furniture a consumer finds on the Internet isn’t what you have been showing even though it looks a lot like it. Or, if it is the same furniture, the customer has told you a lower price than the site actually quoted as a bargaining ploy. (Yes, even the most moral of customers will do that to save  buck or ten!)

Second, make sure the Internet quote includes all costs the consumer will incur. This includes freight, white glove delivery, and sales tax, if applicable. Most Internet sites ship furniture to their customers by common carrier. With the price of gas on the increase, freight is becoming a big factor for Internet retailers. Then compare the total cost of the Internet package with your bid, which will include sales tax and delivery fees.

Third, be sure to emphasize to the customer that your price includes a lot of hidden values they might not appreciate. Here are a few:
1.    Your store will take responsibility and handle any freight damage that might occur during the transaction. You would be surprised how little value consumers place on this. They don’t realize how prevalent freight damage is. After all, “it is just a chair isn’t it; what could go wrong?” 
2.    You will deliver the furniture to them with your “white glove” delivery service. That means you will unpack, assemble, inspect, and place the furniture. Your delivery team will also take the packing materials away. When your people leave, the furniture will be ready to enjoy. Some Internet retailers offer this service, too, but it comes at a big price. Be sure your customer understands that outdoor furniture comes in huge cartons and crates. Getting rid of that is not as easy as throwing out an empty tissue box.
3.    Your store is going to handle warranty problems for your customer. Although consumers always make a point of asking about warranties, most don’t understand what they will need to do if there is a problem covered under warranty. We know how time consuming and costly handling a warranty problem can be; so, make sure you explain it. Assure them that you will come out to take pictures of the problem and work with the vendor for them to get the problem resolved. You will also help them get the furniture back to the vendor if that is required. Then ask them if the Internet etailer can or will do this for them. If nothing else you will have put doubt in their mind which may sway them to do business with a local company.

Fourth and foremost consider your pricing strategy. I can beat the pants off of the big catalog/Internet houses because of the commitments I make to my vendors. However, on any given day, there will always be another retailer, whether a brick and mortar store or an etailer, that will need business badly enough that they will lowball me. It’s times like these that I have to consider whether I want the business badly enough to lower my margin.

Here’s what you don’t do; don’t try to guilt your customer into buying from you just because they used your time to decide what they want. When you opened your doors you didn’t put out a sign saying, “Come in and be welcome only if you are going to buy from us!” Instead, you put up a virtual sign that read, “Please come in and let us convince you by our actions that we will be the only place you will want to shop!”

After the call, I starting thinking about some of the things the retailer told me. He told me his was a young business that wasn’t large enough to place buy-ins that got the biggest discounts possible. Also, some of the lines he carried had loose or no policies regarding Internet sales.

If he isn’t getting the largest discounts and can’t lower his margin, how does he compete? Either he doesn’t carry the line or, if he does, he has to do it in a way that differentiates him from his competitors. He could show high design colorways instead of the standard brown and brown. Perhaps he could show different furniture combinations such as leisure chairs with cocktail tables instead of dining groups. He might want to have a service his competition can’t offer such as on-site design or immediate delivery. If he can’t compete with prices, his business model has to have some “hook” that will make a consumer want to buy from him and only him.

Even if he resolves the discount problem, he is still faced with ineffective or nonexistent Internet sales’ policies. Sometimes a vendor honestly doesn’t know that their line is being “footballed” on the Internet. If he can show them a site that is lowballing prices on their lines and endangering their specialty store distribution, they might be able and willing to do something about it.

For the most part, though, if a vendor’s line is on the Internet, it is with their approval, tacit or not. In that case, he needs to ask himself how many orders he is really losing to the Internet. He should do this after the heat of battle has cooled down. It is easy to make a decision in a fit of pique; but, it’s hard to make a good one. I know I have lost some sales to the Internet, but I have also lost sales to my brick and mortar competitors. If I consistently lose sales involving a specific vendor, then I know it is time to reconsider my position with them. But, if I end up a season and can go to market with an “open to buy” for that vendor, I will put up with the occasional loss.

Finally, DON’T PANIC!! Competition, whether by traditional stores or Internet etailers is a way of life in this industry. Right now, the niche for small specialty stores still exists. Talk with your sales staff, other retailers, sales reps, anyone with experience in selling, to get input. Then develop a strategy for you and your staff to use when it happens again. Don’t forget, if the customer comes back to you for a better price, they really want to do business with you. This is an opportunity to make a sale, not lose it.

Yours in confused retailing, Bruce